The broad objective of this research is to understand the impact of restructured healthcare delivery on the cost and coordination of services in local markets. In the last ten years, the two most prominent trends in restructuring have been (1) the growing penetration and number of health maintenance organizations (HMOs) and (2) the development of integrated provider networks (physicians and/or hospitals). Integrated provider networks have developed partly in response to pressures exerted by HMOs: the need to control costs, and the need to offer or arrange for comprehensive, geographically broad- based services through coordinated arrangements with other providers. We thus expect HMO penetration and HMO competition to be associated with integrated provider network activity, including the joint provision and coordination of services across providers. We also expect HMO market structure and integrated network activity to be associated with lower hospital costs. There is some concern, however, that integrated networks are forming to enhance the bargaining power of providers vis-a-vis HMOs and thereby blunt the downward pressures on HMO premiums. The question is whether the growing power of buyers is offset by the growing power of organized suppliers. The three specific aims are thus to: (1) Estimate the impact of HMO market structure on the development of integrated networks among physicians and hospitals (both horizontal and vertical), including the coordination of service delivery among providers, (2) Estimate the impact of both HMO market structure and integrated networks on hospital costs, (3) Determine whether integrated provider networks augment or moderate the impact of HMO market structure on HMO premiums charged in local markets. Preliminary to these analyses, we shall develop and refine models that estimate the prevalence of HMOs in local markets. We shall then incorporate these estimates in regression models that address Study Aims l, 2, and 3. All analyses will be conducted both cross-sectionally as well as longitudinally using databases that have recently been (or will be soon) made available by the AMA, AHA, and HCIA. The study will also conduct sensitivity analyses using different definitions of local markets to reflect the growing geographic base of integrated networks. Our findings should address important policy questions regarding the ability of market forces to promote service delivery through collaborative efforts among providers (rather than duplication) as well as to lower hospital costs. These analyses have the strength of examining the two dominant providers of services: physicians and hospitals. Our findings will also assess whether integrated provider networks pose a countervailing force to increasing pressures from HMOs.